Summary : The Nature of Political Economy

17 avril, 2015 | Commentaires fermés sur Summary : The Nature of Political Economy

ROBERT S. GILPIN, (1975.), US Power and the Multinational Corporation, The Political Economy of Direct Foreign Investments, Perseus Books Group

Globalization highlights two contradictory trends. Technological breakthroughs are decreasing the cost of interdependence and they favored a more integrated world economy. This first trend is a challenge to the Nation-states capacities to intervene in the economic field. However, it is the actor which bears legitimacy for decision making to promote wealth and security for people.


It is an old confrontation between liberalism and mercantilism since the XIXth century in order to determine which institution should organize society for wealth production either the Big business through the market or the State through the law.

Political economy is the place where these trends are confronted through different theories which try to answer this question. At the international level, because of the anarchical structure of the international system, the relationship between economic gains and political cost is a reciprocal one. The government determines the legal environment which frames the possible direction of economic activities to serve the interests of dominant groups. However, the results of these activities change the power distribution among these groups through a new wealth distribution, whose in return influence the government.


Robert Gilpin

Actually, companies produce wealth and the State distribute among its stakeholder. From an operational stand wealth is anything that can generate future income. So, it is fungible and it may be considered as a securization tool. Political actors are focused around power, hence the actor’s control over the minds and actions of other actors. Power and wealth are qualitative and quantitative means of actions. Each has its features and its specific efficiency toward particular circumstances. Both may be use to answer an existential risk run by a social entity like the State or a Company. The most important property is the uncertainty of wealth production capacities and the statesmen strategy regarding these capacities. This is a dilemma which is at the center of the economic science, where the liberal Hayek is challenging the pro government intervention Keynes since the 1930s financial crisis.

Liberalism regards politics and economics as distinct sphere each with its own decision making process to tackle uncertainty. For liberals, the best decision making is provided by the market which agregate all decisions regarding the supply-demand problem. It is an incremental step by step process, simultaneously produced by all the market actors. On the contrary, mercantilism uses wealth production capacities for domestic and international interest through a securization  process which preclude some actors on the market.


Comparison of the two conceptions of political economy

From the liberal theory there is identity of national and cosmopolitan interests because the market mechanism selects egoist strategies which favored an increase of global wealth. As a consequence, State should not interfere with international trade. The power capacities should not conditionned the rational decision making. Hopefully free exchange of commodities, investment and labor specialization will benefit to everyone because of an increase of global wealth… in the long run.

So, the rational pursuit of wealth should determine the nature of the political order, not the distribution of power. In the liberal politics, the State is simply an aggregate of private interests which compete with other private business interest through the best rational strategy to optimaze wealth production.

On the contrary, mercantilism viewed wealth production situation as a zero sum game and conflictual relationship based of the balance of power. They focused on distributive effects of free trade and relative gains on employment, industry and military power among Nation-states. State is an organic unit which represent more than individuals, it is in charge of the national interest and it should manage economic forces to ensure its survival.

However, both theories lack of concepts for dynamics description of wealth production processes and  wealth distributive effects on power.

For liberalism, changes occur gradually through dynamic equilibrium and mercantilism doesn’t explain sudden change and power shift between actors. The former view global gains as the criteria for decision making in favor of free trade, the later emphasizes relative gains from comparative advantages and the threat it represents for survival of the State as the key decision maker.